Why California Doesn't Have a German-Style Solar Feed-In Tariff

It’s a question we hear all the time: Why doesn’t California have a German-style feed-in tariff for the solar industry? German utilities pay a high price for any solar electricity fed into the grid, with the cost distributed among the country’s ratepayers. The much-esteemed policy made Germany a huge solar market, with 1.5 gigawatts of new capacity installed last year. For comparison, the United States would need 6 gigawatts of annual solar installations, 20 times more than it has today, to reach the same level of market penetration.

But at a luncheon Wednesday to discuss solar trends in advance of the Intersolar North America conference next month, some California solar insiders voiced skepticism about whether a German-style feed-in tariff would be the end-all policy for the state.

In fact, California already has a feed-in tariff, but it’s ineffective because the price is low, based on prices for natural gas. The state also has a net-metering program in which solar customers use the electricity they generate for their own use, then feed excess electricity into the grid, running their meters backward. In addition, California has a solar incentive program, which offers declining rebates for solar projects, and a renewable portfolio standard, which requires utilities to get 20 percent of their electricity from renewable sources by 2010.

So how about it: Why hasn’t California copied Germany for its much-lauded feed-in tariff? Here are some of the reasons California solar insiders have put forth:

1). A feed-in tariff doesn’t factor in where and when the electricity is generated:
Because a feed-in tariff pays the same price for any kilowatt-hour of solar electricity, it doesn’t encourage generation when and where the electricity is most needed, said Sheldon Kimber, vice president of development for Recurrent Energy, which installs and finances solar projects. “One thing the feed-in tariff doesn’t do is expose everybody to different market signals on the grid, such as time-of-use and location,” he said, and these are important factors for a sustainable policy.

2) Germany’s feed-in tariff led to higher panel prices:
Because the tariff offered such a high price for solar electricity, it created a shortage of panels that led to much higher prices. “On the one hand, Germany absolutely built the global manufacturing base, but on the other hand, it built the manufacturing base around the $4-a-watt panel,” Adam Browning, executive director of solar advocacy group Vote Solar, told me last month. “We will always have the German program to thank for what it did – it saved the world, as far as I’m concerned – but it also had some policy ramifications that haven’t been entirely positive.”

3) California’s many utilities, each with their own unique conditions, make it more difficult to create a feed-in tariff:
Getting a German-style tariff in California would be more difficult than it might seem, Sue Kateley, executive director of the California Solar Energy Industry Association, told me in an interview last month. For one thing, the state has more than 30 vastly different utilities. Some are legally prohibited from increasing some of their rates, for example, and others have very low prices for conventional electricity. Los Angeles’ utility, for example, has rates of about 5 cents per kilowatt-hour. “If solar’s going to cost 20 cents a kilowatt-hour and customers pay 5 cents, will customers tolerate that kind of rate increase?” Kateley asked. Meanwhile, prices — and peak demand — in Germany don’t vary as widely.

4) The feed-in tariff only addresses wholesale electricity sold to utilities, and doesn’t encourage energy efficiency:
California’s mix of policies encourages a wider range of solar projects than Germany’s feed-in tariff, which is focused mainly on wholesale electricity, Adam Browning, executive director of solar advocacy group Vote Solar, said in an interview last month. Overall, the policy mix “gives California a unique robustness, a lot of different ways to capture the value of solar,” he added Wednesday. Kateley put it another way: “We need it all,” she said, including both a retail-electricity program to help consumers reduce on-site demand, a utility-scale program, and a wholesale-electricity program like a feed-in tariff.